Do regulations matter? The effects of cross-listing on analysts' coverage and forecast errors: A comparative analysis
Abed AL-Nasser Abdallah
Purpose – The purpose of this paper is to compare foreign listings on regulated and unregulated exchanges, and civil and common-law companies to test the effects of cross-listing (CL) on the firm's number of analysts and the accuracy of their forecast. Design/methodology/approach – The study is a comparative one. The empirical test employs both univariate and multivariate analyses and a sample of 584 cross-listed firms along with the number of analysts and analysts' forecast errors (FE). Findings – After controlling for the firm's size, risk, earnings surprise, and industry, the results show that analysts become more active around CL on the London Stock Exchange (LSE) and PORTAL compared to CL on AMEX, NASDAQ, NYSE and over the counter (OTC). On the contrary, no statistically significant decrease in the magnitude of analysts' FEs was reported, suggesting no increase in the quantity of analysts' information. The results hold for both civil and common-law countries. Research limitations/implications – The study is limited to the use of cross-listed firms only. Future research should include non-cross-listed firms. As for the implications, the evidence indicates that the choice between CL on regulated or unregulated exchanges in the USA has no impact, either on the decision of an analyst to follow the firm or on the quantity of information available about that firm. In addition, the evidence suggests that analysts are more inclined to follow firms that cross-list on the LSE than on the US regulated exchanges. Moreover, PORTAL, as an unregulated market, provides surprising evidence on the significant role of the US large institutional investors in attracting the highest number of analysts per firm compared to other regulated exchanges. Originality/value – The paper compares CL on regulated and unregulated exchanges in the USA and UK for both civil and common-law firms. It contributes to the existing literature on CL and information disclosure and has implications for academics, market regulators, professionals, and multinational firms.
Civil law, Common law, Financial analysis, Financial forecasting, Regulation
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